Per-Pupil Education Spending and Tax Rates, Fiscal 2014

One of the primary goals of Act 60, passed in 1997, was to ensure that Vermont provides substantially equal access to public education resources for all of the state’s children, regardless of the wealth of the community they live in. That is what the Supreme Court required when it declared the previous financing system unconstitutional. Under Act 60 school tax rates on primary residences (or homesteads) in each town are determined by the amount of money voters choose to spend per student.1 The more spending per pupil, the higher the tax rate. And districts with the same per-pupil spending have the same tax rates.

The statewide school tax rate on the fair market value of nonresidential property—land, business property, and second homes—is set by the Legislature each year and does not vary by town. The fiscal 2014 nonresidential property tax rate is $1.43.

Under Act 60—and the modifications adopted in 2003 under Act 68—many Vermonters are eligible to pay an income-based school tax, rather than the property tax on their primary residence and up to two acres of land. About two-thirds of Vermonters pay school taxes on their home this way. The same principle of taxpayer equity was built into the income-based school tax as with the property-based tax. The more spending per pupil in a town, the higher the income-based tax rate for that town. And districts with the same per-pupil spending have the same income-based rates.2

The relationship between residential tax rates and per-pupil spending can be seen in this town2town map. As you hover your cursor over a town, you will see four figures for fiscal 2014 for that town:

$xx,xxx.xx per pupil: the education spending per pupil used to calculate the town’s homestead property and income rates. For towns with more than one school, the Tax Department calculates a single per-pupil amount weighted by the number of students in each school. For towns that are members of union school districts, the per-pupil amount displayed in the map uses a combination of the town school district’s education spending and its share of the union district’s spending.

x.xx% income rate: the percent of household income paid by those who choose to pay school taxes based on their income instead of paying a school property tax on their primary residence and up to two acres of land.

$x.xx fmv prop. rate: the homestead school property rate that residents would pay if all of the property in town were assessed at fair market value (fmv). This is also known as the equalized property tax rate. It is the property rate that is the same in towns with the same per-pupil spending.

($x.xx actual prop. rate): the rate that appears on your local property tax bill. It is based on the locally assessed value of the property rather than its fair market value. Because the grand list in many towns is above or below fair market value, these rates will not be comparable in towns with the same per-pupil spending.

The total school budget is not used to determine per-pupil spending or school tax rates. They are based instead on a subset of costs defined as “education spending.” Expenditures covered by federal funds, endowments, local fundraising, grants, and other state programs such as special education are not counted as education spending and therefore do not affect the property or income-based school tax rates. [↩]

Since towns collect school taxes for the state on the local property tax bills, those who pay based on income receive a credit on their property tax bill that for most people represents the difference between the amount they owe and the amount their property tax would have been. Recent changes by the Legislature, however, have undermined the equity of the income-based school tax by capping the credit at $8,000 and requiring residents paying based on income also to pay property tax on their home’s value that is above $500,000. As a result, some Vermonters are now paying a far higher percentage of their income in school taxes than others with the same income and the same per-pupil spending in their local schools. [↩]